Why are Flight Centre (ASX:FLT) shares still being shorted in November?

What's going on with Flight Centre's short sellers?

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The Flight Centre Travel Group Ltd (ASX: FLT) share price is having an interesting start to today's trading session. At the time of writing, Flight Centre shares are currently going for $20.12 each, down 0.54%.

But this ASX travel share has been giving investors a pretty decent time for longer than just today. Despite the woes the travel sector has faced in 2021, Flight Centre shares remain up 25.75% year to date. They are also up just a tad over 25% over the past 12 months. Both of those metrics handily outshine the S&P/ASX 200 Index (ASX: XJO), which is up 11.1% and 14.5% respectively over the same periods.

So why then is Flight Centre still a short seller target?

My Fool colleague James takes a look at the top 10 most shorted ASX shares most weeks. And every week of November so far, Flight Centre has made the cut. Not just in November either. October also saw Flight Centre dominate the list of the ASX's most shorted shares.

most shorted shares webjet

Image source: Getty Images

Short selling?

If you weren't aware, short selling involves one investor 'borrowing' another investors' shares with an agreed upon date of returning them in the future. The shortseller then sells the shares upon receiving them, hoping to buy back those same shares at a later point for a cheaper price when they are contracted to return them to their original owner.

As such, the short seller hopes that a company's share price will fall over this period, guaranteeing them a tidy profit from that difference in price. This process can be thought of as an inversion of the 'long' share buying that most investors (like you or I) practice, hoping that a company's share price will rise over time.

Thus, when an investor 'shorts' a share, it is essentially a bet that a company's share price will fall. And this is what is happening with Flight Centre right now – investors appear to have some doubts over Flight Centre's short-to-medium term prospects since this company has consistently made the ASX's dreaded 'most shorted list'.

So why does Flight Centre still have such a seemingly large target on its back from short sellers? Well, it's hard to say for sure. But as my Fool colleague noted on Monday, "valuation concerns appear to be the reason for this high level of short interest. For example, [broker] Citi estimates that its shares are changing hands for 32x FY 2023 earnings".

Another factor could be the ongoing gyrations in the future prospects of the travel industry more broadly. After all, Australia has only just come out of what was a months-long lockdown in several states (including the largest two). Investors might not be thinking that Flight Centre deserves to trade on the kind of earnings multiple that Citi is estimating it is, with this ongoing uncertainty.

Could  Flight Centre shares be a buy today?

So what does the future hold for Flight Centre? Well, another broker in investment bank Goldman Sachs isn't too wild with its estimations either. Goldman currently rates flight Centre shares as a 'hold' with a 12-month share price target of $20.70. That implies a future potential upside of roughly 2.5% over the next year.

At the current Flight Centre share price of $20.20, this company has a market capitalisation of $4.01 billion

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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